Tax and SARS knowledge base
Is unit trust income taxable before I sell?
Is income from a unit trust taxable before I sell the investment?
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Direct answer
Yes, a unit trust can produce taxable or reportable income even when you have not sold any units. Interest, foreign dividends, local dividends, property income and other distributions retain tax characteristics that may need to be disclosed in your ITR12. A sale is a separate capital-gains or revenue event.
Reinvesting a distribution usually does not make the distribution disappear for tax purposes. It can still be income received or accrued, while the reinvested amount affects the cost of the additional units.
What this means in practice
Use the annual tax certificate issued by the investment platform or manager. Do not report the increase in the account's market value as ordinary income merely because the units appreciated. Separate distributions from unrealised growth and from proceeds on units actually disposed of.
Local dividends are generally exempt from normal income tax in an individual's hands, although dividends tax may have been withheld. Interest may use the annual interest exemption. Foreign amounts and REIT distributions follow different rules.
Step-by-step
- Obtain the complete annual tax certificate for every portfolio.
- Reconcile distributions with cash and reinvestment statements.
- Match each income category to the relevant ITR12 field.
- Check withholding taxes and any allowable foreign tax credit.
- Keep purchase and reinvestment records for future base-cost calculations.
- Record actual disposals separately from annual income distributions.
Documents and records to keep
- IT3(b), IT3(c) and platform tax certificates.
- Distribution and reinvestment statements.
- Purchase, switching and disposal confirmations.
- Withholding-tax evidence for foreign amounts.
- Submitted returns and assessments.
Important limits and exceptions
The label "unit trust" does not determine one tax result. Money-market, equity, bond, property and offshore portfolios distribute different types of income. Frequent trading or unusual arrangements can also affect whether a disposal is capital or revenue.
When to get tailored advice
Get advice if certificates conflict, foreign tax was withheld, units were switched, or you trade often enough that capital treatment is uncertain.